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CME: Low Placement Levels Expected in USDA Cattle on Feed

19 March 2015

US - According to Urner Barry’s pre-report survey, analysts are in unusual agreement in their expectations of the key numbers in this Friday’s Cattle on Feed report from USDA, write Steve Meyer and Len Steiner.

The results of that survey appear in the table below.  There were 10 respondents to Urner Barry’s questions this month and the spreads between the high and low estimates are smaller than normal.  The average estimates for all three key items indicate lower numbers relative to one year ago and mark a return to a very familiar pattern for flows of cattle into and out of feedlots and the numbers of cattle in them.  

The average expectation for placements would once again put the number very near its lowest level of the past 5 years. It would also market the fourth straight month of lower placements on a year on year basis.  

As for inventories of cattle in the survey lots (ie. those having capacities of 1000 head and more), March 1 would mark yet another month at the lows of the past 5 years should these estimates be accurate.  If net placements come in at that same percentage of last year as total placements, the number of cattle on feed for 120 days or more as of March 1 would be about 12.5 per cent higher than one year ago.  

That figure would be down from 15.5 per cent higher on February 1 but would still suggest that there are plenty of long fed, big cattle in yards.  

Slaughter weights certainly support this conclusion and we still think these animals have to show up in a surge of cattle slaughter at some time.  The report will be released at 3:00 p.m. Eastern time on Friday.  We will include all of the numbers and analysis in Monday’s DLR.

One of the concerns being raised by the surprisingly large supplies of slaughter hogs with winter is whether there will be enough slaughter capacity to handle the normally larger supplies of the fourth quarter.   DLR author Dr Steve Meyer is sort of the “keeper of the capacity” figures and does an annual survey of packers to keep a reasonably close watch on this figure that first became an issue in 1994 and then contributed significantly to the hog price debacle of 1998.  His survey last spring suggested that US pork packers could slaughter about 2.438 million head in a more or less normal 5.4 day workweek.  That level has historically been doable without significant price pressure.  Get above the 5.4 day capacity and prices tend to fall by more than just the supply itself would dictate.     

When USDA released its December Hogs and Pigs report, we concluded that the capacity situation would be snug but not price impacting this fall. That conclusion was based on a litter size forecast based on a normal (since 2006) seasonal pattern for Dec-Feb and Mar-May pigs saved per litter relative to the same figure for Sep-Nov AND an assumption that PEDv losses would be about one third as large as last year.  

As the winter has progressed, it appears that those piglet losses have not been that large, suggesting that our original Q3 and Q4 slaughter expectations may have been low.  The chart on page 2 (see full report) reflects some revisions of those numbers and they put a few Q4 weeks at or above Dr. Meyer’s estimated 5.4 workday capacity.   

That capacity constraint, though, is not hard and fast. Plants can extend hours a bit and work Saturdays for a few weeks to handle large supplies. The toll of those hours on workers and equipment becomes binding at some point but the relationship of slaughter to capacity you see on page 2 should not be a problem this fall.  

The challenge will come next year if expansion continues and productivity rebounds!  The new plant in Michigan will not be running until the fall or ‘17 at the earliest.  Packers will indeed “tweek” their systems to handle more hogs but they may not be able to do enough by Q4 2016 should the breeding herd continue to grow.

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